In the Name of Allāh,

the Entirely Merciful, the Especially Merciful

Praise is due to Allāh, Lord of the worlds, may the blessings and peace be upon our master Muḥammad, the last of prophets, on his family, and all his companions.

Resolution No. 143 (1/16)

Zakāh on Restricted Accounts, Islamic Insurance Companies, Security Deposits, and End-Of-Service Benefits

The Council of the International Islamic Fiqh Academy of the Organization of the Islamic Conference, holding its 16th session in Dubai, United Arab Emirates, on 30 Ṣafar – 5 Rabīʿ al-Awwal 1426h (9–14 April 2005),

Having examined the research papers submitted to the Academy concern- ing Zakat on Restricted Accounts, Islamic Insurance Companies, Security Deposits, and End-Of-Service Benefits,

Having listened to the discussions on the subject,

Resolves

First: Zakāh on Investment Accounts

1. Owners of investment accounts are required to pay Zakāh on the balances and profits of their accounts – when such amounts satisfy Zakāh conditions – regardless of whether the accounts are long term or short- term accounts, or whether restrictions on their withdrawals are set by the managing party or by the owners of the accounts.
2. Zakāh is obligatory on the amounts of current accounts, regardless of whether depositing of these amounts is made in anticipation of a future need of the depositor (other than repayment of his debts), or to be used in investment projects.

Second: Zakāh on Accounts Retained as Securities for Transac- tions

1. The Margin of seriousness (Hamish al Jidiyyah, i.e., amounts paid as security for covering the potential risk of failing to honor a pledge) if not deposited in an investment account; and the initial securities paid for entering bids, are deductible from the Zakāh-liable assets of the The owners of such securities are required to include them into his Zakāh-liable assets and pay the Zakāh on them. If several years passed before refunding such securities to their owners, Zakāh should be paid for only one year at the time of refund. If such amounts are deposited

in an investment account, Zakāh payments become subject to what has been stated in item (First/(a)) above.

1. Amounts of securities deposited for the execution of tenders, and securities deposited by individuals and institutions for obtaining telephone, electricity and similar services or renting buildings and equipment, are subject to Zakāh for one year when it is received
2. The seller should not deduct the earnest money (Arbun) he received from his Zakāh-liable assets. He should pay Zakāh on such a fund because he owns it whether the buyer continues or terminates the

Third: Legal Deposit

It is the amount of money that concerned authorities require a company to deposit in a particular bank in order to get a license. If such amount is to be retained temporarily the company should pay Zakāh on it as part of its assets, whereas, if the amount is to be retained continuously, the company should pay Zakāh on it for only one year at the end of the retention period.

Fourth: Reserves and Profits Carried Forward (Retained or Rein- vested Profits)

The company should pay Zakāh on reserves and retained profits as (being re- flected in) part of its assets when the Current Assets Method of Zakāh calcu- lation is applied.

Fifth: Zakāh on Islamic Insurance Companies

1. The company should not pay Zakāh on technical provisions, credit balances of reinsurance companies, payable claims, and claims under the settlement process are not subject to Zakāh; these are deductible from Zakāh-liable assets because they are debts on the
2. Reserves, provisions for current risks, additional reserve, life insurance reserve, and the amounts retained from reinsurance should not be deducted from the Zakāh-liable assets of the company because the company owns such balances and therefore has to pay Zakāh on

Sixth: End of Service Benefits

Zakāh on End of Service Benefits for Employees and Workers

1. End of Service Award: is a financial right prescribed by the law or the contract for the worker or employee, subject to certain conditions. Such a reward is estimated based on employment period, reasons for discontinuance, and salary of the worker or employee, and payable to him or his family at the end of his It is not obligatory for the

worker or employee to pay Zakāh on such an amount throughout his service duration because during the term of his service, he does not have full ownership of the amount. If a decision is taken to calculate the amount and pay it to the worker or employee, in lump sum or in installments at specific intervals, then the worker or employee becomes the full owner of the amount and should, therefore, include it into his Zakāh-liable assets.

1. Pension Salary: is a monthly amount which, by virtue of laws, regulations or contracts, the employee or worker becomes entitled to get from the state or an institution at the end of his On the same basis, Zakāh is payable on such amount stated in item 6/A above, regarding end of service reward.
2. Retirement Award: is a lump sum paid by the state or an institution to an employee or worker who is covered by the social insurance scheme and does not qualify for pension Zakāh on such amount is payable as per item (Sixth/(a)) above.
3. Saving Award: is a percentage amount deducted from the wage or salary of the worker or employee to be invested along with a specific contribution from the part of the employer, and paid in a lump sum or as per regulations to the employee or worker at the end of his service.

Zakāh on such amount depends on the type of account in which the amounts are deposited. If it is deposited in a special account in the name of the employee or worker so that he can decide the types of investment to which the amount is to be channelled, he should add these funds to his Zakāh-liable assets and pay Zakāh on it, subject to fulfilment of the other conditions of Zakāh.

If, instead, the amount is deposited in an account which the worker or employee has no right to control, the worker or employee should not pay Zakāh on it because he does not yet have full ownership of it. In this case, the employee or worker has to pay Zakāh for only one year at the time of receiving the amount.

Zakāh on End of Service Benefits for Institutions and Companies

For private institutions and companies, the unpaid reserves of end of service award, retirement award, for pension salary and saving award that is kept within the accounts of the employer, all are subject to Zakāh because such amounts are still under the employers’ ownership and must not be deducted from their Zakāh-liable assets.

As regards public institutions, no Zakāh is payable on such amounts which fall under public ownership.

Indeed, Allāh is All-Knowing.